Stock Market & Other Thoughts

In a Nov. 13 note on the market, I opined that it would be
ripe for a correction this week reflecting the very low
level of selling pressure. Exceedingly low selling pressure
reflects investor ebullience and an overbought condition.
Instead, we got volatility and a slight decline week over week.
So, from my perspective, the market still needs a breather.
It can come with a sharp correction or a couple of weeks of
range bound movement. I am looking for developmet of a better
balance between advancers and decliners.

This week revealed increased player apprehension regarding
prospects for an economic "soft landing". Investors were jostled
by negative construction and manufacturing data as well as a
slow early-mid November showing for retail sales. To have a
soft landing this time out, the benefits to incomes and non-
energy corporate profits from a marked deceleration of inflation
need to kick in on the spending side to arrest faltering
demand before it hits employment and confidence. I have not
abandoned the soft landing scenario yet since the regenerative
capabilities of the economy are still intact, especially the
positive liquidity picture. There is no squeeze on.

Last weekend, the first Siberian Slammer engulfed most of Alaska
in below zero weather. The Slammer has moved east and southward,
sending temps down along its path and helping crude oil to kick
off a seasonal strong period with a 7% price gain. This too is
a nettlesome issue for stock players since it's too early to tell
how strong an oil seasonal we will get. It can help energy issues
but it can impair the market's p/e and economic confidence if it
gets too zippy to the upside.

My SP500 Tracker suggests a market of 1425 based on near term
earnings and inflation prospects. At a current discount of 2% to
the Tracker, the market has not caught up with the acceleration
up in fair value that came with the break of inflation pressure.
Moreover, since an intermediate term overbought has developed
in the "500", the market could lose more ground to the Tracker
over the short run. We'll see.